Personal tax returns are starting to get completed and some of our Financial Zen Members will owe a pretty penny.
(I know it’s too soon, but that’s a good problem to have.)
Here’s what we’re telling them for this year and next.
1. YOU GOTTA PAY: First and foremost, it’s important to pay your taxes on time to avoid penalties and interest charges. (However, if you live in California, you probably get an automatic extension this year so you can wait to pay until October instead. Check with your tax advisor.)
2. ADJUST YOUR WITHHOLDING: You might be withholding too little from your paycheck. An easy solution is to take your tax bill for 2022, divide it by 26 (the number of paychecks in a year) and withhold that dollar amount per paycheck.
3. INCREASE YOUR ESTIMATED PAYMENTS: If you’re self-employed or have other sources of income that aren’t subject to withholding, you may need to make quarterly estimated tax payments.
4. MAXIMIZE DEDUCTIONS: Employee benefits like a Traditional 401k, Health Savings Account and Dependent Care FSA are easy ways to make pre-tax contributions for things you’re already saving for/spending on AND they lower your tax bill.
5. COMPLETE A MID-YEAR TAX ANALYSIS: Something we’ll start doing this year for our FZ Members is a mid-year tax analysis to gauge where you’ll end up at year-end. 6 months will give you enough time to course-correct without feeling it too much. (Ask your CPA for help with this.)
Paying more in taxes than you’re legally obligated to usually results from missed planning opportunities. Putting these on your radar will help reduce the blow this time next year.
